Nippon Paint is gathering firepower for a worldwide deal spree and will assume a central role in the consolidation of a $150bn global industry hit hard by the coronavirus, said its chief executive.
A fresh acquisition drive by Nippon Paint would come on the heels of a $12bn deal with its largest shareholder — a private company founded by one of Singapore’s richest billionaires — that will combine two of Asia’s biggest paints and coatings groups into a regional titan.
To ready itself for a potential flurry of mergers and acquisitions, people familiar with the matter said Nippon Paint decided on Thursday to restructure its worldwide automotive coatings operations into a single unit better able to absorb new companies as they are acquired.
Like others in the sector, Nippon Paint has been pressured by Covid-19 as the global shutdown of car factories hit its automotive paint business, causing a 19 per cent year-on-year fall in net profit for the first six months of the year.
But in an interview with the Financial Times, the Japanese group’s chief executive Masaaki Tanaka said that the crisis offered opportunities it may not have had otherwise. The severe downturn, he said, provided a chance for Nippon Paint to make strategic global acquisitions across a still fragmented paints industry.
“When the entire market is down, there will be industry realignment opportunities for a company like us with financial firepower and stable management since there will be players that will be difficult to survive on their own,” added Mr Tanaka. “We will of course consider launching M&A.”
Mr Tanaka, the former deputy president of Mitsubishi UFJ Financial Group who headed the bank’s US operations, engineered a complex deal with Singapore’s Wuthelam Holdings, its largest shareholder. Under the agreement Nippon Paint will issue new shares to Wuthelam, the paints business founded by 93-year-old Goh Cheng Liang that has already built a 39.6 per cent stake in the Japanese group.
The $12.2bn third-party share allotment will by January raise Wuthelam’s stake in Nippon Paint to 58.7 per cent of outstanding shares, building on a 50-year relationship under which the Singaporean group has steadily increased its stake and taken an active role in its strategic direction.
In a circular deal structure, the majority of funds raised from the share issuance will be deployed by Nippon Paint to buy out a series of Asian joint ventures it has established over the years with Mr Goh’s company. The deal will include the Japanese group’s acquisition of Wuthelam’s wholly owned business in Indonesia for $2bn.
Last year, Nippon Paint paid more than $3bn for paint-makers in Australia and Turkey.
Since announcing the tie-up with Wuthelam on August 21, Nippon Paint shares have risen 36 per cent, earlier this week hitting their highest level since their listing in 1949.